More Lessons from the UK—On Poverty and Inequality

Earlier this week, I had the great good fortune of visiting the UK as part of a U.S. delegation of academics, congressional and administration staff. Alex Beer at the UK embassy set up a terrific set of meetings and consultations for information sharing between several nations. On Monday, we all attended an international conference about welfare reform challenges organized by the UK Department for Work and Pensions. Over the next two days, we met with officials from the UK, along with visitors from Australia and New Zealand.

There is a great deal to share about these meetings regarding the role of government, best practices for employment, and social inclusion. (Plus, it was an excellent experience for the ten of us to share ideas and make plans for future endeavors across ideological lines. It is too often true that it takes an adventure out of DC for people who - mostly - live in the same place to get together in a meaningful way.)

The most striking conversations we had were all about poverty reduction, as defined in the UK and the US.

In 1999, Tony Blair established the government goal of ending child poverty within a generation. After some consultation with academics and others, the promise was defined with ambitious and specific goals: to reduce child poverty by a quarter by 2004/05, by a half by 2010/11, and to end it by 2020.

While we were visiting, the government announced the 2005- 2006 results, and relative poverty had increased over the previous year by 100,000 children.

This could be a political problem for political leaders, and indeed, the opposition is trying to make waves about it. Even the reasonable press had headlines like this one:"Blow for Brown as poverty figures increase after years of decline".

But, at least the editorial writers at the Guardian understand the difference between absolute and relative measure of poverty. In the leader the day after the announcement, the editors took pains to explain the importance of choosing the relative measure:

Certainly, the headline relative poverty measure is hard to budge, for it is a moving target: merely to stand still money has to be channelled to the poor to keep pace with rising middle-class pay. Yet, when all the research shows that it is how one's income compares to the average that drives one's health, happiness and opportunity, the target must be the right one.

Overall, the paper defended the importance of defining poverty with a measure designed to illustrate inequality and improve social inclusion. This is fundamentally different from the U.S. – where - as we have noted recently here, the poverty formula is designed to measure deprivation, based on 1950s assumptions.

Using a relative measure of poverty defined as income inequality makes it hard to eliminate the poverty, precisely because it is a moving target.

Of course, it’s not inherently bad to seek to eliminate income inequality. But making the promise of eradication is a set up for failure and likely to create a politically difficult climate for elected and appointed officials, and for funders, when observers are disappointed by outcomes that fail to match the vision. Moreover, this disappointment can lead to even more disenchantment with government solutions and could reinforce the unfortunate understanding that poverty is mostly due to poor individual choices.

Still, it’s great when the media make the kind of distinctions that the Guardian makes in this editorial defending the government’s promise:

Yet what… yesterday's figures prove beyond doubt is how strong the underlying drivers of inequality in the economy remain. In a week when it emerged that Barclays director Bob Diamond netted £22m last year, yesterday's data showed that household incomes in the lower income brackets had fallen behind. It is because the pay penalty for less skilled workers remains stubbornly high that, even with upward the trend in lone-parent employment, child poverty has now increased. In this context the measures highlighted by welfare secretary John Hutton yesterday, such as his plans to pressure more single parents into work, will not be an adequate answer. For, as the Institute for Fiscal Studies suggested, the main culprit for the bad 2005-06 figures was the failure to increase the tax credits during that year at a sufficiently rapid rate.

It is to Gordon Brown's credit that last week's budget found £1bn - in a fiscally strapped environment - to boost the child tax credit for workless and low-paid parents. That is not enough to get fully back on track, but it should mean that the direction of travel will soon be the right one again. By contrast, the Conservatives still fail to convince. Under their watch an extra 100,000 impoverished children was the rule and not the exception. As long as they suggest tax breaks for married couples will be the first claim on available resources, they will struggle to show that they can do better next time round. Despite yesterday's setback, on this issue at least, very clear water continues to divide the government from the opposition.

In the UK, like the US, people are working harder – and still the combination of wages and employment benefits doesn’t go far enough to close the inequality gap. Indeed, the gap gets wider.

Watch these pages for more lessons from the UK soon.